The Potential Money Multiplier

Read the scenario below, and then answer questions 1 and 2. Refer to this week’s readings in the text, if needed.

Scenario: Bank A has an increase in deposits (or excess reserves) of $100M and the reserve requirement is 10% with other banks not holding reserves beyond the requirement.

  • How much money can Bank A create by making loans?
  • How much money can the banking system as a whole create? (Show calculation).
Current Monetary Policy

After reading the Week Five required readings, address these questions in your post

  • What are the current monetary policy goals?
  • How has the Fed attempted to meet some of these goals? What have been the outcomes?
  • Do you agree or disagree with the Fed taking action to intervene when the economy is not well-functioning? Why or why not?

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